nep-pbe New Economics Papers
on Public Economics
Issue of 2010‒11‒20
fourteen papers chosen by
Oliver Budzinski
University of Southern Denmark

  1. Is Fiscal Decentralization Harmful for Economic Growth? Evidence from the OECD Countries By Roberto Ezcurra; Andrés Rodríguez-Pose
  2. Visibility of Contributions and Cost of Information: An Experiment on Public Goods By Anya Savikhin; Roman Sheremeta
  3. Fiscal Policy in a Growth Framework By Norman Gemmell
  4. How does a fisacl reform affect elasticities of income tax revenues? the case os Spain, 2003-2008 By Diego Martinez-Lopez
  5. Does the Endowment of Contributors Make a Difference in Threshold Public Good Games? By Federica Alberti; Edward J. Cartwright
  6. Remittances, Value Added Tax and Tax Revenue in Developing Countries By Christian EBEKE
  7. Does Political Competition Matter for Economic Performance? Evidence from Sub-national Data By Saibal, Ghosh
  8. Governments under influence: Country interactions in discretionary fiscal policy By Aurélie Cassette; Jerome Creel; Etienne Farvaque; Sonia Paty
  9. The political-economy of tax reforms in Pakistan: the ongoing saga of the GST By Ahmad, Ehtisham
  10. How Optimal Nonlinear Income Taxes Change When the Distribution of the Population Changes By Craig Brett; John A. Weymark
  11. Mobilising Tax Revenue to Finance Development: The Case for Property Taxation in Francophone Africa By Nara Monkam
  12. Optimal size of government and economic growth in EU-27 By Magazzino, Cosimo; Forte, Francesco
  13. Essays on Russia’s Economic Transition By Solanko, Laura
  14. Teacher Pay, Class Size and Local Governments: Evidence from the Latvian Reform By Hazans, Mihails

  1. By: Roberto Ezcurra; Andrés Rodríguez-Pose
    Abstract: The global drive towards decentralization has been increasingly justified on the basis thatgreater transfers of resources to subnational governments are expected to deliver greaterefficiency in the provision of public goods and services and greater economic growth. Thispaper examines whether this is the case, by analysing the relationship betweendecentralization and economic growth in 21 OECD countries during the period between 1990and 2005 and controlling not only for fiscal decentralization, but also for political andadministrative decentralization. The results point towards a negative and significantassociation between fiscal decentralization and economic growth in the sample countries, arelationship which is robust to the inclusion of a series of control variables and to differencesin expenditure preferences by subnational governments. The impact of political andadministrative decentralization on economic growth is weaker and sensitive to the definitionand measurement of political decentralization.
    Keywords: Fiscal decentralization, political decentralization, administrative decentralization, economic growth, OECD
    JEL: H40 H52
    Date: 2010–05
  2. By: Anya Savikhin (Becker Center on Chicago Price Theory, The University of Chicago); Roman Sheremeta (Argyros School of Business and Economics, Chapman University)
    Abstract: We experimentally investigate the impact of visibility of information about contributors on contributions in the public goods game. We systematically consider several treatments that are similar to a wide range of situations in practice. First, we vary the cost of viewing identifiable information about contributors. Second, we vary recognizing all, top or bottom contributors. We find that recognizing all contributors significantly increases contributions relative to the baseline. Recognizing only the top contributors is not significantly different from not recognizing contributors, but recognizing only the bottom contributors is as effective as recognizing all contributors. When viewing information about contributors is costly, there is no significant difference in contributions as compared to the case where all contributors are displayed by default. This effect holds even though the identities of contributors are viewed less than ten percent of the time.
    Keywords: public-goods, information, competition
    JEL: C72 C91
    Date: 2010
  3. By: Norman Gemmell
    Abstract: This paper assesses recent theorising and empirical evidence on the impact of fiscal policy—taxes, public expenditures and budget deficits—on long-run growth. It considers the relevance of recent advances in growth theory for low-income countries and compares the evidence for low-income countries with that for middle-and high-income (OECD) countries. [Discussion Paper No. 2001/84]
    Keywords: fiscal policy, public expenditure, taxation, economic growth
    Date: 2010
  4. By: Diego Martinez-Lopez (Department of Economics, Universidad Pablo Olavide.)
    Abstract: This paper estimates the extent to which an exogenous change in income affects income tax revenues. We focus on the case of Spain over the period 2003-2008, as income tax there underwent a substantial reform in 2007. Using both an analytical method and a numerical simulation, we find a significant increase in aggregate income tax elasticities from 1.4 for 2003-2003 to around 1.8 for 2007-2008. The sensitivity of results to the presence of housing tax credits, non-equiproportional variations in income, changes in income inequality and fiscal drag is also considered.
    Keywords: income tax elasticity; progressivity; tax rates; tax credits
    JEL: H20 H24
    Date: 2010–11
  5. By: Federica Alberti; Edward J. Cartwright
    Abstract: We investigate experimentally whether the endowment of potential contributors changes the success rate of providing threshold public goods. We find a U shaped relationship in which the success rate is relatively high when the endowment is either relatively small or large. We also find an inverted U shaped relationship in terms of the variance of contributions. This suggests that people find it hardest to coordinate and provide threshold public goods when endowments are of ‘intermediate’ size. By this we mean that the endowment is small enough that people do need to contribute relatively a lot to fund the good, but is also large enough that no one person is critical in providing the good. Coordinating is difficult in this case because there is an incentive to free ride and the possibility to do so creating a conflict of interest.
    Keywords: Public Good; Threshold; Endowment
    JEL: C72 H41
    Date: 2010–10
  6. By: Christian EBEKE
    Abstract: This paper examines the impact of international remittances on both the level and the instability of government tax revenue in receiving countries. It investigates in particular whether the presence of a value added tax (VAT) system increases the benefit of the inflows of remittances in terms of high and less volatile tax revenue ratio. This is supported by the fact that remittances are largely used for consumption purposes and contribute to smoothing private consumption. Using a large sample of developing countries observed over the period 1980-2006, and even after factoring in the endogeneity of remittances and VAT adoption, the results highlight that remittances significantly increase both the level and the stability of government tax revenue ratio in receiving countries that have adopted the VAT.
    Keywords: Remittances, VAT, Tax revenue, Tax Revenue Instability
    JEL: O23 E32 F20 H20
    Date: 2010
  7. By: Saibal, Ghosh
    Abstract: The study utilizes data on major Indian states for 1980-2004 to explore the impact of political competition on state-level income and fiscal variables. The findings suggest that increase in political competition leads to an increase in state per capita income and growth. Focusing on fiscal variables, the analysis indicates that tighter political competition increases economic expenditure.
    Keywords: political competition; economic performance; fiscal policy; sub-national; india
    JEL: H72 H71 P52
    Date: 2010–01
  8. By: Aurélie Cassette (EQUIPPE-Universités de Lille, Faculté des sciences économiques et sociales); Jerome Creel (Observatoire Français des Conjonctures Économiques); Etienne Farvaque (EQUIPPE-Universités de Lille, Faculté des sciences économiques et sociales); Sonia Paty (CREM Université de Caen and CNRS (France) and EQUIPPE-Universités de Lille, Faculté des sciences économiques et sociales)
    Abstract: We investigate the interactions between countries of the discretionary component of national fiscal policies (i.e. the cyclically- and interest-adjusted part of fiscal policy), therefore observing and investigating the part of public spending and tax receipts on which governments keep full discretion. Our sample covers 18 OECD countries, during the 1974-2008 period. First, we build a measure of such discretionary fiscal policy, considered as the residual component of a VAR model, and compute the measure for the full sample. Drawing on this new dataset, the second step provides estimates of discretionary fiscal policy interactions between countries of the sample. Our results highlight the existence of interactions between neighboring countries' public decisions, where neighborhood is defined by economic leadership as well as geography. We also find evidence of an opportunistic behavior of OECD countries' governments for the discretionary public spending. Finally, the disciplining device of the European Union fiscal framework is shown to be ineffective.
    Keywords: Fiscal policy; discretion; interactions; VAR; spatial econometrics
    JEL: E62 H60 H87
    Date: 2010–10
  9. By: Ahmad, Ehtisham
    Abstract: Should tax reforms be guided by rules of thumb suggested by the IMF, or directions or reform based on analytical approaches, such as optimal tax theory? In many cases, the applications of the directions of reformâwhich suggest a differentiation of the structure given distributional, incentive and revenue concerns, can be brought close to the IMF prescriptions by a judicious balancing of tax instrumentsâsuch as a single or dual rate VAT together with systems of excises. But in some cases, such as Pakistan, neither prescription has yielded either the revenues anticipated, nor the necessary salutary effect on incentives for productionâdespite repeated attempts during successive IMF programs over 20 years. The proposition in this paper is that the collusion between vested interests, including the tax administration has led to the difficulties that have also exacerbated the âtrust deficitâ between the federation and the provinces. In this paper we examine issues of collusion between the tax administration and vested interests, and also difficulties arising from assigning a very mobile base to a level of government that does not have the technical capability to administer it. Section I examines method, based on the theory of reform. Section II posits the antecedents of tax reform in Pakistan over the past 50 years. Section III focuses on the design and implementation of the GST. Section IV examines the political economy of provincial revenue assignments; and Section V concludes.
    Keywords: Financial Economics, Political Economy,
    Date: 2010–10
  10. By: Craig Brett (Department of Economics, Mount Allison University); John A. Weymark (Department of Economics, Vanderbilt University)
    Abstract: The impacts of changing the number of individuals of a particular skill level on the solutions to two versions of the finite population optimal nonlinear income tax problem are investigated. In one version, preferences are quasilinear-in-leisure. For this version, it is shown that it is possible to sign the directions of change in everyone's optimal consumptions and optimal marginal tax rates. In the other version, preferences are quasilinear-in-consumption. For this version, it is shown that is possible to sign the directions of change in everyone's optimal before-tax incomes and optimal marginal tax rates. Moreover, the directions of change in the optimal marginal tax rates are the same for the two specifications of preferences.
    Keywords: Asymmetric information, comparative statics, optimal income taxation
    JEL: D82 H21
    Date: 2010–04
  11. By: Nara Monkam
    Abstract: In the context of a widespread focus on decentralisation in Africa, there has been an imperative to find suitable ways to maximise potential own revenue sources at all sub-national government levels. This need in particular and the need for greater domestic resource mobilisation by African states in general have been exacerbated by the current global financial crisis that has led many countries into recession and left developed and developing countries alike scrambling to find solutions at home. Indeed, greater domestic resource mobilisation will go a long way toward providing African countries with the means to finance their development agenda without relying excessively on external assistance.
    Date: 2010
  12. By: Magazzino, Cosimo; Forte, Francesco
    Abstract: Using time-series techniques and panels data, the paper analyses for the EU countries in the period 1970-2009 the existence and shape of the “BARS curve” (Barro, Armey, Rahn, and Scully), connecting the size of Government (measured by the share of public expenditure on GDP) to the rate of economic growth. Individual countries research has been conducted for 12 countries for whom enough time series were available, while panel analysis has been performed both for EU-27 and for subgroups, distinguished by their different socio-economic and monetary structures, and per capita GDP. BARS curves were generally found, and the shares of actual public expenditures generally exceed substantially those related to the maximization of GDP growth. However, great differences do emerge. For the 12 countries examined by time-series techniques, the difference between the actual level and the peak of the BARS curve ranges from 5.7 points for Germany and 18.1 points for Belgium. Panel data analysis for EU-27 shows a peak of the BARS curve at 37%, while the actual level is about 47%. While, panel data disaggregation shows a similar situation for the Western Continental Countries, with a smaller gap for Anglo-Saxon countries. For low per capita GDP countries the peak is higher than for the mature economies. So, further research may prove useful to show light on the disparities emerging in the empirical analysis of individual countries and of the panel sub-groups. However, the present research provides enough evidence that high GDP countries of EU have overcome the level of government size compatible with GDP growth rate maximization.
    Keywords: Government size; economic growth; BARS curve; public expenditure; EU-27.
    JEL: E62 H60 C23 C22 O40
    Date: 2010–09–01
  13. By: Solanko, Laura (Bank of Finland Research)
    Abstract: This study comprises an introductory section and three essays analysing Russia’s economic transition from the early 1990s up to the present. The papers present a combination of both theoretical and empirical analysis on some of the key issues Russia has faced during its somewhat troublesome transformation from state-controlled command economy to market-based economy. The first essay analyses fiscal competition for mobile capital between identical regions in a transition country. A standard tax competition framework is extended to account for two features of a transition economy: the presence of two sectors, old and new, which differ in productivity; and a non-benevolent regional decision-maker. It is shown that in very early phase of transition, when the old sector clearly dominates, consumers in a transition economy may be better off in a competitive equilibrium. Decision-makers, on the other hand, will prefer to coordinate their fiscal policies. The second essay uses annual data for 1992–2003 to examine income dispersion and convergence across 76 Russian regions. Wide disparities in income levels have indeed emerged during the transition period. Dispersion has increased most among the initially better-off regions, whereas for the initially poorer regions no clear trend of divergence or convergence could be established. Further, some – albeit not highly robust – evidence was found of both unconditional and conditional convergence, especially among the initially richer regions. Finally, it is observed that there is much less evidence of convergence after the economic crisis of 1998. The third essay analyses industrial firms’ engagement in provision of infrastructure services, such as heating, electricity and road maintenance. Using a unique dataset of 404 large and medium-sized industrial enterprises in 40 regions of Russia, the essay examines public infrastructure provision by Russian industrial enterprises. It is found that to a large degree engagement in infrastructure provision, as proxied by district heating production, is a Soviet legacy. Secondly, firms providing district heating to users outside their plant area are more likely to have close and multidimensional relations with the local public sector.
    Keywords: Russia; transition; regional issues; tax competition; infrastructure
    JEL: H20 H50 N90 P20
    Date: 2010–11–11
  14. By: Hazans, Mihails (University of Latvia)
    Abstract: This paper employs a rich collection of survey and administrative datasets, including linked school-teacher payroll data, to document the reform of teacher compensation and school network implemented in Latvia amidst the economic crisis of 2008-2010, immediately after territorial reform. We explore diverse responses by local governments in terms of proportion of state subsidy transferred to schools, extent of redistribution of state funds between schools, degree of autonomy in compensation policies given to schools, and municipal contribution to school wage bills. Other things equal, municipalities tend to redistribute funds from schools with high student-teacher ratio (S/T) to ones with low S/T. Nevertheless, the reform has changed the effect of the local student-teacher ratio on teacher earnings per workload from negative to positive of the same size. Survived schools feature strong heterogeneity in terms of workload and staff reduction, change in class size, and compensation strategies. We provide evidence for a substantial incidence of using performance-related criteria for teacher base salary differentiation. We analyze school and individual level determinants of teacher pay using mixed models with municipality and school level random effects.
    Keywords: local governments, teacher compensation, linked employee-employer data
    JEL: H75 I22 I28 J31 J33 J45 M52 C23
    Date: 2010–10

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